Are you ready to retire? If you are a federal employee and are familiar with the FERS retirement package, you have taken an important step to prepare yourself for retirement. Your FERS benefits are only one component of your federal retirement package, and planning for the future requires you to do more than simply calculate your federal annuity. At retirement, FERS retirees typically draw funds from their annuity, Social Security, and their personal savings (which includes the TSP). Financial professionals often refer to these components as the “three-legged stool”.
The Three-Legged Stool
All three legs play a part in maximizing your federal retirement income, but they will not necessarily bear the same weight in your planning; nor do they have to. That’s the beauty of having multiple- income streams; one leg can compensate for the others. For example, if you haven’t put enough away in savings, you can continue working longer to beef up your pension and delay drawing Social Security in order to increase your benefit.
As you move closer to retirement, it’s important to consider how the different legs of your retirement stool need to work together. If you have not begun this kind of planning, then here are few good research points to begin with:
- What are the full benefits of being a FERS employee? As a FERS employee, you have a wide range of benefits available, and you will want to make the most of all of them.
- When can I begin drawing a Social Security benefit? Knowing your options will help you determine the best time for you.
- How will the TSP Modernization Act affect my TSP planning?
Planning Your Federal Retirement
Certainly, for FERS retirees many more questions need to be answered than the three listed above; however, these are three great questions to get the ball rolling. Planning for retirement begins with addressing the three legs of your retirement stool. As you learn about your retirement system, Social Security, and TSP, you may even find that you can retire sooner than you thought.
A successful federal retirement does not mean you simply stop working, but transition into the next stage of life with clarity on where you’re going and confidence that you know how to get there. Clarity and confidence can be achieved, but not without asking the right questions and getting the correct answers. Bob Buford’s book, Halftime, has been a great resource for many federal employees as they establish a vision for their life in retirement. To learn more about this book, click here.
Understand Your Financial Options
There are various strategies you can employ when planning for federal retirement, but you will need to understand your entire financial situation and your options. You also need to develop a firm understanding of what the tax implications of your FERS annuity and other income streams will be, and how the different components of your retirement will work together. To begin understanding your tax standing as a federal employee, see our Four Key Federal Employee Tax Planning Tips.
The three legs of the stool can and do affect one another. For a successful transition from a FERS employee to a FERS retiree, it is essential that these three legs work with, rather than against one another. That is part of confidently preparing for your retirement.